May 10, 2009

Steve Malanga has a good qualitative history of the failures of the federal government to promote homeownership among marginal families from Herbert Hoover onward in Obsessive Housing Disorder in the Manhattan Institute's City Journal. An excerpt:

Pressuring nonbank lenders to make more loans to poor minorities didn’t stop with Sears. If it didn’t happen, Clinton officials warned, they’d seek to extend CRA regulations to all mortgage makers. In Congress, Representative Maxine Waters called financial firms not covered by the CRA “among the most egregious redliners.” To rebuff the criticism, the Mortgage Bankers Association (MBA) shocked the financial world by signing a 1994 agreement with the Department of Housing and Urban Development (HUD), pledging to increase lending to minorities and join in new efforts to rewrite lending standards. The first MBA member to sign up: Countrywide Financial, the mortgage firm that would be at the core of the subprime meltdown. ...

Congress later took up where Clinton left off. Not content that nearly seven in ten American households owned their own homes, legislators in 2004 pressed new affordable-housing goals on the two mortgage giants, which through 2007 purchased some $1 trillion in loans to lower- and moderate-income buyers. The buying spree helped spark a massive increase in securitization of mortgages to people with dubious credit. To carry out this mission, Fannie Mae turned to old friends, like Angelo Mozilo of Countrywide, which became the biggest supplier of mortgages to low-income buyers for Fannie Mae to purchase.

It's not clear, however, which way the arrow of causality flows here. My best guess is that Mozilo figured out that there could be huge profits in "predatory securitizing" and browbeat Fannie and Freddie into letting him dump his crud loans on them so that they wouldn't lose marketshare and because Countrywide had played the race card so heavily over the years in building up its reputation as the "paragon" of diversity lending. (Countrywide sold all the mortgages they originated as fast as they could package them up.) So, Fannie and Freddie didn't invent the Bubble, but their massive entry into the buying up terrible loans in 2005 and 2006 from boiler room operators like Countrywide caused the disaster to reach its most lurid heights.

It now looks like we taxpayers are going to be subsidizing Fannie and Freddie for, roughly, ever.

By the way, why in this otherwise admirably comprehensive history is there no mention of George W. Bush's October 15, 2002 White House Conference on Increasing Minority Homeownership? Republicans and Democrats have sure worked together to drop that event, where Bush called for adding 5.5 million new minority homeowners by 2010 by getting rid of down payment requirements to drop that key even down the Memory Hole.

7 comments:

Cheap housing loans to NAMs was just the one that took off during that period of solid Republican control of the House, Senate, White House, and Supreme Court.

Why not call out some of the Republicans who were on top of this but still in office?

Here is a list of Republicans on Fannie's lobbying staff:

Internal Freddie Mac budget records show $11.7 million was paid to 52 outside lobbyists and consultants in 2006. Power brokers such as former House Speaker Newt Gingrich were recruited with six-figure contracts. Freddie Mac paid the following amounts to the firms of former Republican lawmakers or ex-GOP staffers in 2006:

Excellent City Journal article delineating and tying together the government housing and lending program themes that have been pounded upon here at iSteve in a consistent, repetitive fashion.That is responsible journalism.Not 'racism' or 'bad person' or other sundry labels and namecalling when one hasn't a case or clue. Being part of the problem rather than solution by serving conduit for the advocacy groups'PR and media campaigns- 'redlining' and 'unfair lending programs' etc- it is ironic that bad journalism practiced by bad journalists at bad journals are doing the tongue and finger wagging at the opposite. Doubly ironic that no price is paid, no accountability or responsibility for complicity in supporting each enabling step along the way to the debacle...while exacting a heavy price, in terms of good name and more, from accused 'bad people and persons' who have been shown, in the fullness of time, to have consistently gotten it right.

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"An Atlanta-area minority loan program, crafted hastily after a newspaper redlining exposé, provided further evidence. The program lent more than half of its mortgages to single women with children, including women on public assistance, some of whom took on payments of up to 50 percent of their monthly income. Within a year, 10 percent of the loans had gone delinquent and the homeowners were sinking deeper into other kinds of debt. Yet the program’s woes received little publicity. Community groups argued that the difficulties were all the fault of the banks, which should have offered the loans with lower interest rates."

"Another reason government kept up the pressure was that no matter how high ownership rates climbed, there was always a group below the norm that needed help. The country’s substantial immigration rates in the 1990s and early 2000s, for instance, produced a whole new cadre of potential Latino borrowers. To serve them, the Congressional Hispanic Caucus launched Hogar, an initiative that pushed for easing lending standards for immigrants, including touting so-called seller-financed mortgages in which a builder provided down-payment aid to buyers via contributions to nonprofit groups. As a result, mortgage lending to Hispanics soared. And today, in districts where Hispanics make up at least 25 percent of the population, foreclosure rates are now nearly 50 percent higher than the national average, according to a Wall Street Journal analysis."

One thing that needs to be investigated is the American psychology of home ownership. Why do people think they "own" a home when they have a mortgage, meaning the bank really still owns it? Why do Americans, more than any others, want to "own" a home, rather than rent? Why do new immigrants quickly acquire the American passion to "own" a home, even with a ridiculous no-down-payment loan?

It's not just the usual government propaganda and politicians' lies at work here. Maybe there's something in the country's past as settlers and homesteaders, of "striking out for the territories," that makes "owning" a home an ingrained desire.

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